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Coronavirus/COVID-19 Tax Guidance
Individual Income Tax

For Iowa individual income tax purposes, Iowa net operating losses (NOLs) are generally carried back two years, except for losses incurred in a presidentially-declared disaster area by taxpayers engaged in a small business or in a farming business (3-year carryback), losses incurred by taxpayers due to casualty or theft (3-year carryback), and, by election, losses incurred by individuals engaged in farming (5-year carryback). See IA 123 for further guidance regarding carrybacks and carryforwards. The information below only covers NOLs incurred in a presidentially-declared disaster area by taxpayers engaged in a small business or a farming business.

On March 23, 2020, President Donald Trump issued a federal disaster declaration, effective January 20, 2020, for all counties in Iowa due to the COVID-19 pandemic. As of August 26, 2021, this disaster declaration is still ongoing. Since all counties in Iowa are part of the presidentially-declared disaster area for the COVID-19 pandemic, all Iowa NOLs incurred between January 20, 2020, and the end of the disaster declaration in Iowa by a taxpayer engaged in a small business or a farming business must be carried back 3 years unless the taxpayer makes an election to waive the entire carryback period or to use the 5-year carryback period available for farmers.

Taxpayers must use the IA 123 to calculate their Iowa NOL. Taxpayers engaged in a small business or a farming business with an NOL incurred in a presidentially-declared disaster area should, in addition to any other applicable boxes, check the “Other” box on the line “What caused the NOL” of the IA 123, and write “COVID-19 pandemic” in the explanation section. Taxpayers who already filed their 2020 tax return but who did not elect to waive the carryback period and only carried their Iowa NOLs back 2 years will need to amend their returns to reflect the 3-year carryback.

Who qualifies as a “taxpayer engaged in a small business?”

Taxpayers must be engaged in a small business or a farming business to qualify for the extended 3-year carryback for Iowa NOLs incurred in a presidentially-declared disaster area. For this purpose, “small business” means the same as Internal Revenue Code (IRC) section 172(b)(1)(E)(iii) in effect on December 21, 2017. To qualify as a small business, the taxpayer must meet the gross receipts test of IRC section 448(c). Taxpayers meet the gross receipts tests if their average gross receipts for the 3-taxable-year period ending with the preceding tax year are less than a specified amount, indexed for inflation. For tax years beginning in 2020 and 2021, this specified amount is $26,000,000.

Apply the following requirements in IRC section 448(c) when making this calculation for Iowa tax purposes:

  • For certain taxpayers with multiple affiliates considered as a single employer, see the aggregation rules in IRC section 448(c)(2).
  • If the business was not in existence for the entire 3-year period, the same calculation should be made for the period the entity was in existence.
  • Gross receipts for any tax year less than 12 months shall be annualized by multiplying the gross receipts for the short period and dividing the result by the number of months in the short period.
  • Gross receipts for any taxable year shall be reduced by returns and allowances made during such year.
  • Any reference to an entity shall include a reference to any predecessor of such entity.

Waiving the NOL carryback period

  • The Department intends to adopt administrative rules as necessary to reflect the NOL information in this guidance.